TOBACCO SCANDALS GATHER SPEED

After two months of complete silence during which the Ministry of Finance was the home of most scandals in Bulgaria, Bulgartabac Holding is again in the centre of all events. Attacks are now coming from Russia, but on two independent fronts. The letter sent by Garegin Gevondyan, Manager of Soyuzcontract - Tabac, to Bulgaria's Prime Minister Simeon Saxe-Coburg-Gotta on April 5 drew the attention last week. Soyuzcontract - Tabac is one of the distributors of Bulgarian cigarettes in Russia. Mr. Gevondyan is accusing Bulgartabac Executive Director Georgi Popov of asking him a bribe amounting to USD500,000 on a meeting held earlier this month. Had the Russian agreed, he would have been awarded the right of an exclusive distributor of Bulgartabac in Russia. As it usually happens lately, Bulgaria's Vice Primier Nikolai Vassilev counter-attacked at a press conference, held on April 9. He presented the letter to the journalists saying he had complete confidence in Georgi Popov. Mr. Vassilev also declared that he considered Michael Chernoy responsible for the attack. Chernoy has relations with Soyuzcontract - Tabac through International Tobacco Fund, the Deputy PM said, and not so long ago the fund was expected to take part in the privatisation of Bulgartabac. Besides, Mr. Vassilev added, there could be more attacks until the divestment is concluded. April 30 is the deadline by which information memoranda can be bought. Obviously, that letter will not put an end to the scandal. Gevondyan himself claims he is able to show evidence for the required bribe. If things go this way, the scandal will appear to have much stronger consequences than the management contract of Georgi Popov and the following dismissal of the former deputy minister of economy Lyubka Kachakova did.Mr. Gevondyan really has something to fight for, considering that only a week ago Soyuzcontract - Tabac was removed from the list of Bulgartabac's distributors. The decision was motivated by the Russians' unacceptable conditions - they wanted to acquire the exclusive rights for the sale of Bulgarian cigarettes in Russia. In March the holding's Board of Directors decided that a monopoly on the distribution of its products will be tolerated under no circumstances. That is why negotiations for the sales rights on the territory of the Russian Federation are only continuing with two local companies.Soyuzcontract - Tabac is a minority shareholder in the joint plant of Podolsk, Russia, in which more than 70% of the capital is held by Bulgartabac's subsidiary Shoumen-BT. Until a few days ago the plant possessed a licence allowing it to produce Bulgarian trade-mark cigarettes, but then the licence was suspended. The reason was a statement that the signature of Boiko Kishkov, former executive director of Bulgartabac, under the licence agreement had been falsified. Meanwhile, the Podolsk plant was among the few operating divisions of the holding in Russia. The cessation of its activity will further reduce the presence of Bulgarian cigarettes in Russia. That was also confirmed by Georgi Popov who told the BANKER weekly that sales have not gone well since the beginning of the year, but that was considered normal for the winter season. He expected the revenues to start growing in April, but the attacks of Mr. Gevondyan in that specific moment led to market uncertainty. Still, the Executive Director confirmed he hoped Bulgartabac would conquer 3% of the Russian cigarette market in 2002, compared to its 1-1.5% share in 2001. The Russians are now laying claims for buildings of Bulgartabac that were owned by the German tobacco concern Reemstma till the World War II. Russia justifies its claims with some post-military agreements it has signed with Germany for the payment of reparations. Experts comment that the Russians have slim chances to win the argument since there is an interstate agreement signed in the 50s by Bulgaria and the then USSR, stipulating that both parties waive their mutual claims. Therefore, the transfer of buildings to Russia is not quite probable.In effect, even if Bulgaria loses the argument, it is difficult to believe that assets will be taken from Bulgartabac. The claims are on a state level, so estates of the holding cannot be demanded, said Georgi Popov but admitted he was not an expert on the issue. Bulgaria may compensate Russia either with shares in the tobacco company or with other instruments, but it cannot use assets of Bulgartabac. Moreover, the holding is not entirely owned by the State. The buildings may in fact be transferred to Russia, but then the Bulgarian Ministry of Economy is expected to compensate the holding or reduce its own stake in it.It became clear last week that Deutsche Bank is likely to take part in the privatisation procedure. Rumours also spread that there was a political decision to prevent International Tobacco Fund - controlled by Michael Chernoy who was forced to leave Bulgaria - from winning the bid at any cost. This is one possible explanation why Gevondyan whose company is believed to be related to Chernoy is attacking Bulgartabac in this moment. Gevondyan, however, denies to have anything in common with the former owner of MobilTel. It is also possible that he applies for the Bulgarian tobacco monopolist by himself.